Wednesday, January 4, 2012

New taxes border on illegality



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File | NATION Finance minister Uhuru Kenyatta (centre), his deputy Oburu Odinga (left) and Planning minister Wycliffe Oparanya before presenting the Budget to Parliament last year.
File | NATION Finance minister Uhuru Kenyatta (centre), his deputy Oburu Odinga (left) and Planning minister Wycliffe Oparanya before presenting the Budget to Parliament last year. 
By  GRIFFINS OMWENGA gomwenga@ke.nationmedia.com
Posted  Tuesday, January 3  2012 at  22:00
IN SUMMARY
  • Failure by Parliament to pass Finance Bill by Dec. 31 endangers new tax measures announced in June
Taxation measures announced by Finance minister Uhuru Kenyatta in his June Budget risk unravelling unless a crucial law validating them is passed soon.
The measures reviewed taxes on beer and cigarettes upwards but the increment is likely to be declared illegal because the Finance Bill is yet to be passed by Parliament.
Parliament failed to meet the December 31 deadline set to approve the taxation measures following a stalemate between the Executive and MPs over the contents of the Bill.
Forced to refund
The failure is likely to take away the provisional legitimacy that Kenya Revenue Authority has to collect new taxes as announced by Mr Kenyatta.
The likely beneficiaries of the unprecedented situation are beer consumers and cigarette smokers whose products attracted punitive excise duty reviews.
Beer prices went up by between Sh10 and Sh20 per bottle, while those of cigarette increased by between Sh10 and 20 per 10-stick packet. The prices are likely to be cut if the stalemate drags on to June.
The government may also be forced to refund at least Sh3 billion it had projected to collect from taxpayers.
According to Prof Michael Chege, a policy analyst at the Ministry of Planning, the macro- economic policies will also be affected if the Bill is rendered redundant.
“Economic stability will be greatly affected by Parliament’s failure to pass the Finance Bill into law,” he told the Nation during an interview.
An official at the KRA, noted that the taxman would use the rates that were being charged before June 8, last year, until the Bill is ratified.
To this extent, employees entitled to multiple tax reliefs might start enjoying this privilege.
For the last six months, the workers have been benefiting from only tax relief as was outlined by the minister.
On the downside, employees might revert to the old model where they were filing their annual income tax returns with the taxman, and yet their employers also submit similar report under the Pay As You Earn (PAYE) terms.
Mr Kenyatta had proposed that this requirement be dropped since it was repetitive.
Professionals who have been paying a 10 per cent withholding tax are likely to slide back to the initial five per cent.
The telecommunication sector could also be taken miles back, given that the requirement for SIM card registration also ceases to exist until the law is ratified.
Gazetted wheat dealers who have been enjoying a zero-rated Common External Tariff (CET) might also start paying  the before June 2011 10 per cent tax.
The CET application that reduced the rice importation tax to 35 per cent from 75 per cent might lose its legal efficacy.

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